Working Paper: CEPR ID: DP12670
Authors: Benjamin Pugsley; Petr Sedlacek; Vincent Sterk
Abstract: Only half of all startups survive past the age of five and surviving businesses grow at vastly different speeds. Using micro data on employment in the population of U.S. businesses, we estimate that the lion's share of these differences is driven by ex-ante heterogeneity across firms, rather than by ex-post shocks. We embed such heterogeneity in a firm dynamics model and study how ex-ante differences shape the distribution of firm size, ``up-or-out'' dynamics, and the associated gains in aggregate output. ``Gazelles'' --a small subset of startups with particularly high growth potential-- emerge as key drivers of these outcomes. Analyzing changes in the distribution of ex-ante firm heterogeneity over time reveals that the birth rate and growth potential of gazelles has declined, creating substantial aggregate losses.
Keywords: firm dynamics; startups; macroeconomics; big data
JEL Codes: D22; E23; E24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| ex-ante heterogeneity (D80) | firm growth (L26) |
| higher ex-ante growth potential (O49) | likelihood to survive and grow (O40) |
| lower ex-ante growth potential (O49) | likelihood to exit the market (G17) |
| selection based on ex-ante growth profiles (O41) | upward slope of the age profile of average firm size (L25) |
| decline in birth rate and growth potential of 'gazelles' (J11) | significant aggregate output losses (E23) |